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Winners and losers in President Trumps student loan plan

Winners and losers in President Trumps student loan plan

Winners and losers in President Trumps student loan plan

Alexander Holt

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President Trump proposed major changes to the federal student loan program in his first budget request to Congress. These include reforms to the Income-Based Repayment (IBR) program and the interest-free benefit on some loans for undergraduates. This paper offers a first look at the likely net effect of these changes proposed for undergraduate and graduate students (excluding the effects of eliminating the Public Service Loan Forgiveness program). We use hypothetical borrower scenarios to compare how much borrowers with different loan balances would pay under the Trump proposal as compared to the existing program. Generally, we show that undergraduate students would receive a net increase in benefits relative to the current program due to earlier loan forgiveness. Those benefits are largest for borrowers with above-average debts and relatively higher incomes in repayment. The analysis also provides a reminder that graduate students can receive generous benefits under the current IBR program without having to earn a low income. The Trump proposal would substantially reduce benefits for graduate students below what they could receive under the current IBR program and even under the original 2007 version of IBR.

Introduction

Certain borrowers in the federal loan program have had the option to make income-based payments on their debts since the 1990s. However, this program was limited in important ways for most of its history and few borrowers used it. A series of changes between 2007 and 2012 made this option incrementally more generous and open to all borrowers. The changes helped transform online payday KS the program from a little-used option into one that a quarter of borrowers choose today. 1 All new borrowers in the federal student loan program as of 2014 can use the most generous version of this program, now called Income-Based Repayment (IBR), which sets payments at 10 percent of discretionary income and provides loan forgiveness for any unpaid balance after 20 years. Read more about Winners and losers in President Trumps student loan plan

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